1.  ScottishPower is one of the UK's six large integrated energy suppliers, and is owned by IBERDROLA, one of the world's leading utility groups and a particular leader in low carbon generation. Our sister company, ScottishPower Renewable Energy Limited, is the UK's largest wind power generator. We have electricity networks in South and Central Scotland, Merseyside and North Wales and some 5.2 million energy customer accounts. Our power generation assets include the Longannet and Cockenzie coal plants in Scotland and a number of gas fired stations in England.

  2.  This Memorandum relates to the Environmental Audit Committee's announcement of 22 May 2008 of a brief inquiry into Carbon Capture and Storage (CCS), with a particular focus on developments surrounding the Kingsnorth power station. Given our interest as a major electricity supplier, and an owner and developer of coal-fired electricity generation plants, we would like to offer some brief comments on the wider legislative and regulatory issues touched upon by this inquiry. The specifics of Kingsnorth are a matter for Eon as the plant's owner and not for ScottishPower.

  3.  In our view, the electricity needs of the UK are best served by a broad mix of generation sources, including renewable, fossil and nuclear plant. Coal-fired generation provides a valuable contribution to this mix, and has played an important role in the UK's physical and economic security of supply in recent years. In particular, it has proved an effective buffer against cost or availability problems in the gas market and it also has proved effective in responding to shorter term fluctuations in supply and demand. Even with the currently programmed major growth of renewables and a significant nuclear programme, coal will be a key component of generation for many years to come.

  4.  Clearly, coal fired generation brings with it an environmental cost. Emissions of sulphur dioxide are being reduced to very low levels through the flue gas desulphurisation investments that have either been completed or are currently being finished. Nitrogen oxides have also been much reduced, with a further tightening up programmed for 2015 under the Large Combustion Plants Directive. The remaining issue is the carbon dioxide emitted from coal.

  5.  The primary method for dealing with this is the emission trading system. This ensures that CO2 emissions are zero sum. For every additional tonne of CO2 we emit from our power stations, somebody somewhere has to emit a tonne less. ETS ensures that the abatement is made where and when it is most cost effective. So, if the gas market in the UK is tight in the winter, it may make sense to burn more coal in power stations in order to save the gas for heating people's homes and avoid pushing the price even higher; but in the summer, when there is more gas available, it may make sense to burn it in power stations and avoid the need to buy expensive carbon credits to support coal burning. Similarly, it may on occasion be sensible to buy carbon credits from elsewhere in Europe and burn coal in the UK, with its good import logistics; while at other times—for example if there is low cost LNG available—we may be able to burn more gas here and sell the credits into Europe. Either way, the environmental result is not affected.

  6.  Most of the coal power stations in the UK are around 40 years old. Since they were commissioned, technology has improved with the development of supercritical designs. These can produce significantly more electricity for the same input of coal and output of CO2 and other pollutants. Supercritical generation can be delivered either by retrofit of an existing station or by building a new plant. Although ETS will ensure environmental neutrality whether or not supercritical units are built, the extra efficiency of a modern supercritical plant is on any measure a good thing. To the extent that it displaces output from existing old and less efficient coal stations, this will reduce emissions per unit of electricity generated. Furthermore, the modern units are likely to be more reliable once fully commissioned; as the existing fleet ages, we can expect an increasing level of unplanned outages. Accordingly, we think it would be unwise in terms of security of supply to prevent the modernisation of the UK's coal generation plant.

  7.  CCS is an emerging technology with the potential to facilitate significant reductions in CO2 emitted to the atmosphere by fossil fuel power plant. The UK Government has launched a competition to develop the UK's first commercial-scale CCS process. The competition, as we see it, will help develop understanding of the issues and costs associated with commercial-scale operation and consequently assist in clarifying the framework within which CCS investment decisions may be made. The competition is at a very early stage and we expect it will take until around 2014 for the demonstration project to start yielding useful experience.

  8.  CCS is attracting global interest and several projects of varying scale are being initiated worldwide. These projects provide further evidence of the view that the technology offers potential but they are also indicative of the level of uncertainty surrounding it.

CAPTURE READY

  9.  We recognise that CCS could provide a valuable CO2 abatement option in the future. For this reason, we have welcomed the Government's competition for funding to demonstrate the technology and submitted a pre-qualification entry. It is clearly sensible to consider how this technology might be deployed in existing fossil fuel plants and provided for in the planning and development of new-build stations. Such consideration must recognise the current limitations in our knowledge of CCS and in particular the current uncertainties about cost and performance at commercial scale.

  10.  ScottishPower would be comfortable with a requirement for new coal-fired power stations to be capture ready, providing that a reasonable and clear definition of capture readiness is developed. In principle, that definition should be the minimum needed to ensure that the design of the new plant does not rule out retrofit at a later stage; it would not be sensible to try to require elaborate preparation as the details of what might be retrofitted are not yet clear. Such an approach should not be onerous, as any sensible developer installing a new coal fired power station would wish to anticipate the possibility of fitting CCS should the technology become economic.

  11.  The main negative impact of a requirement for capture readiness would be to rule out certain sites for coal fired development, for example if there was insufficient land. This would need to be balanced against the benefits of ensuring that developers considered retro-fit of CCS in their designs. In the case of gas fired plant, we think that it would be premature to require CCS readiness as the carbon savings from carbon capture are significantly less and any CCS installation would be a much larger fraction of the cost and footprint of the station. A proposed requirement for CCS readiness for gas stations would need careful consideration to ensure that it did not inhibit their construction in a way which made it harder to close the forthcoming supply gap in Great Britain.

  12.  As far as the actual installation of CCS is concerned, we see this in the long run being driven by the ETS. Once CCS technology is established, and the cost of carbon rises, then the value of carbon saved will drive installation of CCS in appropriate cases. Where in the long term, the value of the carbon saved does not exceed the cost of fitting and operating CCS, then it is probably correct not to fit CCS to that particular installation, but instead accept that the cost of carbon is likely to reduce its utilisation.

  13.  In the medium term, we agree with the Committee that some form of support scheme should be considered that would assist CCS in the early stage of deployment. It is unlikely that the current competition will bring the technology to a stage where it could be supported by ETS alone, and some sort of bridging support is likely to be needed to ensure sufficient deployment to bring the costs down to an economic level.

  14.  We believe that mandatory implementation of CCS should be firmly ruled out. If CCS is economically viable in terms of the cost of the carbon saved under ETS, then—so long as the plant is capture ready—it will be in the operator's interest to install it. So mandatory retrofit would only have any significant impact in circumstances where it would not be economically worthwhile to fit CCS. We question whether Government would wish to take actions of this kind where the cost benefit assessment is negative.

  15.  Furthermore, the prospect of mandatory retrofit of CCS without financial support to cover the costs could make it harder for investors to commit to a coal fired power station. This is because the risk of having to pay the retrofit costs in circumstances where they were not economic would need to be factored into the investment case. It would be unreasonable to ask investors to shoulder that risk, and the result might well be that modern, more efficient coal fired generation projects did not go ahead. This could leave electricity supplies in Great Britain excessively dependent on imported gas. We doubt that this is in the public interest.

2 June 2008